Govt rejects R3.3bn Telkom-KT deal

2012-06-01 15:30

Reuters

Johannesburg -
Telkom’s top shareholder, the South African government, has rejected KT Corp’s
$385m offer for a 20% stake in the telecoms firm, potentially scuppering the
South Korean firm’s first foray into fast-growing Africa.

Shares in Pretoria-based Telkom [JSE:TKG] plunged to an
eight-year low on the news on Friday. The stock were 4.9% lower at R21.79 12:44
GMT, on track for their biggest daily percentage fall in eight months.

KT, South Korea’s No. 2 mobile operator, has been scouring
for opportunities in Africa, Latin America and Eastern Europe seeking to grow
earnings as competition back home heats up.

It last month trimmed its offer for the stake in Telkom, a
fixed-line operator majority owned by the South African government, by nearly a
third and bringing the total sale value down to about R3.3bn.

“With the reduced price the government feels that selling
Telkom at this price would be a give away,” said Dobek Pater, a telecoms
analyst at consultancy Africa Analysis.

Pater said the government may be betting on Telkom’s
performance to improve at some point and could then be sold for more money.

“It’s a bit of a catch-22 because Telkom may not necessarily
improve much,” he said.

Telkom, which is about 40% owned by South Africa’s
government, has been fighting to rein in costs and return to growth, hit by the
decline in traditional telephony and a costly failed expansion plan in Nigeria.

The company said the deal, which analysts say would dilute
the government’s shareholding in the company to 32%, was presented to cabinet
on May 30 and did not get the support it needed.

“Telkom was informed by the Minister of Communications that
(the) cabinet had taken the decision not to support the transaction as
proposed,” it said in a statement.

The company said it would discuss the implications of the
cabinet’s decision with the minister. The government did not give reasons for
the decision.

But Pater said the decision could have substantial impact on
Telkom’s growth plans as the company was counting on the cash to fund part of
its expansion.

“It’s still a bit of
a 50-50 whether it is going to happen or not happen. It depends on what case
the minister can state to the cabinet to try and change their opinion,” Pater
said.

Telkom, which recently launched a mobile unit as part of its
push into new markets, has also been struggling to keep up with bigger
Johannesburg-based African mobile operators MTN Group [JSE:MTN] and Vodacom
Group [JSE:MTN].